BofA says Nifty may be nearing its peak as risks mount

Investing.com -- The Nifty 50 may be approaching the end of its current upswing, according to Bank of America analysts, who warn that the recent rally has left little room for further upside while risks are rising across the broader Indian market.

BofA noted that it turned “tactically bullish on Nifty in March ‘25” following a 15% correction from its September 2024 peak. 

However, with the index now up 12% since March, analysts see just “2% upside to our unchanged Nifty year-end target of 25k.” 

BofA now believes the Nifty and large caps are entering “the last leg of the rally,” and remains bearish on small and midcaps.

The firm highlighted five key risks that could derail the market: a shallow economic recovery, overoptimistic expectations for an India-U.S. trade deal, unpriced geopolitical and global risks, the resurgence of populist policies ahead of key state elections, and moderating domestic institutional inflows.

While India’s monetary stimulus may support growth, BofA expects only a “shallow revival,” with capex growth forecast at 11% annually through FY27, well below the 16% consensus. 

They note that Nifty’s earnings growth outlook for FY26 is also muted at 9%, versus the consensus of 13%.

The analysts also cautioned that markets may be overestimating the benefits of a potential India-U.S. trade deal and underestimating geopolitical tensions or spillover from a global slowdown. 

They said the “Nifty has a 96% correlation with S&P,” making it vulnerable to U.S. market moves.

BofA favors large-cap stocks over small and midcaps and prefers rate-sensitive sectors like Financials, Autos, and REITs. 

The bank remains underweight on capex-linked and globally exposed sectors, saying valuations in areas such as defense, railways, and state-owned enterprises remain stretched.